Have you seen the previous article where I talked about the pros of trading with a prop firm? If you haven’t, click here to read it.
In this article, I’ll be sharing reasons why I do not buy the idea of trading with a Prop firm. This is my opinion on the subject. If you have any contrary opinion, please share them with me in the comments.
Here are some of the reasons why I would not go for a prop firm account.
Pressure To Pass The Challenge.
The first time I attempted trading a Prop firm account, it was not a funny experience at all. The pressure to meet up with the 8% target within a 30 day period was high. 15 days into the challenge my account was in a -3% drawdown. This means that I needed 11% to hit the target within 15 days. Mehn! I was not emotionally stable during that period. I eventually did not meet up and I was unable to get to the next stage.
If care is not taken, the pressure you will encounter to pass the challenge can actually make you lose the account.
Even with the no time limit, the pressure to meet up the target on time will still overwhelm you.
Trading Limitations
For some, the prop firms do not allow you to trade as your trading system permits. I have seen quite a number of traders who did not meet up with passing the challenge because the prop firms did not not allow their traders hold trades over the weekend.
So if for instance, you are a crypto trader but the prop firm does not permit crypto trading on their platform, you only have the option to trade currencies.
Trading an instrument you are not so familiar with can result in losses and inability to manage the account.
Drawdown rules can also limit your potential to make profit on the account. Let’s say your account hits -3% which could be the maximum daily drawdown set by the firm. Assuming you see a good trade with a potential 1;10, you miss out on it because you have hit the daily -3% already.
Consistency Rule
If you start trading with 1% risk, you cannot switch to risking 4% on a trade all of a sudden. Whatever risk amount you expose your trades to per time is what you are to maintain. Even if you want to increase or decrease the risk, it still has to fall within the range of 1% in this case.
Riskier Than Traditional Broker
The market is now saturated with prop firms springing up every week. With the high competition among prop firms and their juicy offers, it is difficult to tell which prop firm is really genuine. Traditional brokers are more regulated than prop firms. I know quite a number of prop firms that disappeared into thin air after making a lot of money off traders’ sign up fee. To open an account with a regulated broker, click here
Payouts/Withdrawals
For regulated traditional brokers, you can request for payouts and within 24hrs, your account will be credited. With prop firms, you are not likely to receive your payouts within 24hrs. It may take about 7-14 days for your withdrawal to be processed.
What if there’s an urgent need for the funds?
High Subscription Fees
You cannot gain access to their live trading account until you make payment for the account. About 70% of traders are unable to afford the subscription fees of the account size they desire to trade because the fees are high.
In conclusion
Before you sign up, sit down and weigh the pros and cons carefully. If you are ready to trade with a prop firm, you should ensure that
1. You have back-tested and confirmed that you have a profitable trading strategy.
2. You are not new to trading. The first thing that should be on your mind as a new trader is to acquire education.
3. You are comfortable with splitting profits with the prop firm.
4. You are not afraid of losing
If there are some other pros or cons that you would like to talk about, please share them in the comment section.
